FCC Wants $25 Million for Cell Phone Subsidy Program 'Fraught with Fraud'

Double the price, double the fraud--now FCC wants free Internet for the poor

By + More

A decades-old FCC program, one the government concedes is easy to cheat, wants $25 million in funding for a new initiative to provide low-income families with free broadband Internet access—and the funds will come from your cell phone bill.

Whether you knew it or not, if you have a cell phone, you've been footing the bill for a mobile device for a low-income family. The "Federal Universal Service Charge" is often lumped in with other carrier fees at the bottom of your monthly cell phone bill, usually amounting to a couple of bucks a month.

That money is pooled into a fund disbursed by the FCC to cell phone carriers who provide free or low-cost cellphones for families who qualify for other federal benefits, such as food stamps or welfare.

The Lifeline program was created to allow low-income families to call 911 in case of an emergency but has since expanded to include cellphones and, soon, mobile broadband.

The program cost $772 million to operate in 2008, but by 2011 the cost more than doubled to $1.6 billion, according to the Universal Service Administration Company which manages the disbursement of funds.

[See a collection of political cartoons on the budget and deficit.]

"It started out with, 'Every household should have a dialtone, so you should call in an emergency,'" says Larry Downes of the technology think tank Tech Freedom. "Well, then it became, 'They should have basic phone service. They should have a basic cellphone service.' They say it's become a basic staple of life. You can't argue with that, but your electric bill doesn't charge you a tax to make sure poor people have electricity."

Because the program has no cap, the fees passed on to consumers are simply raised each year if more people enroll, which has been the case over the last couple of years. In Louisiana, the number of Lifeline customers grew from 38,000 in 2008 to 626,000 in 2011, an increase of 1,565 percent.

Downes charges that the system has been "fraught with fraud."

"People have been ripping this thing off left and right," he says. And the FCC knows it, too.

A 2007 survey of more than 200,000 Lifeline subscribers shows that more than 12 percent of participants were found to be ineligible for the program, according to FCC records. In some states, those numbers were higher. In Arizona, nearly half of 1,313 Lifeline subscribers who completed the survey were deemed ineligible for the program. The FCC says it has already identified more than 200,000 duplicate Lifeline subscriptions—which are illegal under the rules.

The FCC has announced plans to beef up oversight. The commission released new rules Monday designed to reduce the number of illegal duplicate accounts (families are allowed one landline or cell phone per household). But the new rules also call for $25 million to test out low-cost, subsidized mobile broadband for low-income families.

The new rules also call for the creation of a "National Accountability Database" that will "detect and prevent duplicative" accounts. The database is supposed to be set up within a year.

[See pictures of SOPA protests.]

FCC Chairman Julius Genachowski said the changes could save consumers more than $2 billion over the next three years. The new oversight "says to anyone contemplating gaming the system: Don't bother, you'll be caught and punished," he said in a statement.

That would indeed be a change, says Eric Iverson, director of external relations at USAC. Iverson says people who have been gaming the system for years have gotten off with less than a slap on the wrist. People with multiple lines get a letter in the mail that asks them which line they'd like to keep.

"We de-enroll the subscriber from the other carrier in which they choose not to get support from, and they retain the support to which they're entitled," he says.

The new FCC rules also allow for low-income families to apply for free or reduced-price broadband service, which Genachowski says is "rapidly becoming a necessity, not a luxury." The pilot program will provide $25 million to test out how the program will work.